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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
Updated
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Class 1 NICs : Earnings of employees and office holders : Taxed Award Schemes (TAS)

Many companies use incentive systems, other than cash, to:

  • motivate their employees, or those of another company
  • encourage retailers and distributors to :

    • purchase the company’s products, or
    • sell more of them The most common examples of non-cash

incentives are free holidays, cars, goods and vouchers.

In November 1984 the Taxed Award Scheme (TAS) was introduced as a voluntary system to collect tax on non-cash awards direct from the provider. Under TAS, the provider agrees the value of the award with the Inland Revenue’s Incentive Award Unit and signs a contract agreeing to pay the appropriate basic rate tax on the valuation.

It is normal for the award provider to meet the tax liability of the employee. The NIC liability will vary depending on who meets the tax liability.

Employer is the provider of the award and pays the tax billIf the employer provides a cash award it will be liable for Class 1 NICs. Most non-cash awards will attract a liability for Class 1A NICs – see

NIM13000for general guidance regarding Class 1A NICs. If the employer pays the employee’s tax due on the award then they are making a payment for the benefit of the employee and the tax paid is earnings for Class 1 NICs purposes (see NIM02010 and NIM02015). Class 1 NICs will be due on the value of the tax paid.

Third party is the provider of the award and pays the tax billIf the third party, for example a car manufacturer who provides a holiday to a retailer’s salesperson, meets the tax liability, usually both the non-cash award and the tax will be liable for Class 1A NICs. That liability may rest with the third party, rather than the employer. See

NIM16351 for guidance regarding the Class 1A NICs position.

But the employer will remain liable for Class 1 NICs if the third party provides the employee with an award which is liable for Class 1 NICs (this includes cash, a cash voucher or a benefit which normally attracts a Class 1 liability – for example, those assets detailed in Parts III, IV and V of Schedule 3 to the Social Security (Contributions) Regulations 2001). The employer will be liable not only for the payment of Class 1 NICs on the award but also for the payment of Class 1 NICs on the value of the tax paid by the third party.

Third party provides the award but the employer pays the tax billIf the third party provides the award but the employer meets the tax liability of the employee then the employer will be liable for the payment of Class 1 NICs on the value of the tax he has paid.

It is important to remember that Class 1 NICs will be due on the grossed-up tax figure where someone other than the employee settles the tax bill. See NIM02377 for an example of how to calculate this figure.

When does liability for Class 1 NICs arise on settlement of the tax?Liability for Class 1 NICs in respect of the payment of the tax will arise at the time the employer pays the tax over to the Inland Revenue. You should add the figure of grossed- up tax to any other earnings in the earnings period and assess NICs on the total earnings in the normal manner (see

NIM01008).